Economic Systems: Capitalism Essay

1800 words - 7 pages

Capitalism

Capitalism is an economic system characterized by the private ownership of the means of production, and where production is guided and income distributed largely through the operation of markets. The objective of a capitalist society is to gain profit.

Some of its strengths of living inside a Capitalistic economy are the incentive for innovation, efficiency, and economic growth. Unlike socialism, there are opportunities to invent new products for areas of demand, to raise quality, and to gain assets.

One of the most recognized Capitalist economists after the Great Depression was John Maynard Keynes who advocated for the government intervention on behalf of Capitalism to provide an economic stimulus. He opposed the populist ideas from other economists who believed markets would fix themselves, stating that “insufficient demand would lead to growing unemployment” (2011. Welna, David) and would create a cycle of misery. He believed that capitalism would end from lack of buyers, sellers, producers, demand, employment opportunities, and money being exchanged in the economy. His beliefs were embraced by the US, although, government failed to follow his advice on using this only as a short term solution. Since then our National debt has risen to trillions of dollars.

Socialism

Socialism is an economic system characterized by the social ownership of the means of production, and where the production and distribution of goods is determined mainly by central planning. The objective is satisfying economic demands and human needs. It provides a safety net for all people, but without the use of prices, it also creates lots of waste.

It is said that when Capitalism fails, economies tend to look at Socialism. This might be because Capitalism has two very strong oppositions, which are the rigid class systems it creates and the fact that money gets concentrated in a few number of hands. Mainly in those who control the means of production. Therefore, if one of these, let alone both, cause a big enough gap in society then people figure Capitalism has failed them and it’s time to seek socialist medicine.

However, one economist was convinced that Socialism was not the medicine, it was the disease. The great depression gave birth to the biggest opponent to Socialism, Nobel Prize-winning Austrian economist Friedrich Hayek, who believed in free-market capitalism without intervention from the Government. In his book, “Road to Serfdom” Hayek rejects socialism and central planning by arguing that “the economy is too complicated for politicians to avert recessions and unemployment without unintended consequences that may well be worse” (2011. Keith, Tamara), like the unintended creation of totalitarian regimes such as the one that existed in Nazi Germany. Although Hayek was a proclaimed Capitalist and contemporary to John M. Keynes, his views on the absolute separation between markets and government is what set them apart in their economic...

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